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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Many of us feel safer with a big pile of cash in the bank – especially with global uncertainty never far from the headlines. But holding too much can quietly erode your money.
Here’s how to sense-check your emergency fund and make your money pull its weight.
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It’s normally recommended to have cash sitting in easy-access accounts that can cover your expenses if there’s a crisis or you suddenly experience a drop in income.
If you’re still working, often recommended to have a minimum of three months’ worth of key living expenses and bills set aside. Many would advise six to 12 months. So if your mortgage is £500, and other key bills such as food and energy are £1,000, your total monthly expenses are £1,500. That would mean you’re looking to have £4,500 to £18,000 set aside in an account that’s easily accessible.
It can be difficult to work out how much should be in your own personal emergency fund. Nick Onslow, a chartered financial planner at Progeny Wealth, says he advises people to have at least six months of living costs.
He also recommends having a further £2,000 to £5,000 set aside to cover the costs of replacing important household items such as a washing machine or for large car repairs.
He says that in recent years he has seen an increase in clients keeping more in cash than they need, perhaps because of stock market fluctuations.
“As part of any good financial plan you need to have an emergency fund that represents your individual needs. I think it has become harder to put a figure on how much cash you should keep. It is not simply a mathematical decision – it is often an emotional one as well,” he adds.
Rachel Jensen, wealth manager at Jensen Wealth Management, says she typically advises clients to keep at least three months of essential expenses in cash. However, for retirees she often recommends holding more.
If you’re retired, your fixed monthly outgoings are likely to be lower if you are mortgage-free. However, retirement is a time when a larger cushion might make sense – particularly if you have a lower or fixed income, because there is less ability to rebuild savings if hit by an unexpected cost.
Having a healthy cash buffer provides both flexibility and peace of mind. It also helps avoid the need to draw from pensions or investments during market downturns.
You may also want cash available to help other family members, whether to help children on to the property ladder or to help with care costs for elderly parents.
Jensen says some guidance suggests that retirees hold two or even three years of cash, especially to avoid drawing from investments in volatile markets. But while that might suit those with large portfolios or higher risk tolerance, for most people it’s more than necessary. If large sums are left in cash it can lead to missed opportunities for growth – with cash quietly losing value to inflation.
“I do have clients with £50,000 or more sitting in cash, often because it feels reassuring for them. But once essentials and near-term plans are covered, we look at whether that money could be working harder elsewhere – so it’s not just safe but also supporting their longer-term goals,” she adds.
Kevin Mountford, co-founder of savings platform Raisin UK, says that having too much in current accounts can cost you. Inflation is still higher than Bank of England targets and many accounts are not keeping up with inflation.
The Consumer Price Index (CPI) measure of inflation was 3.2% in January, down from 3.6% the previous month. But there are concerns of a new wave of inflation due to rising oil and gas prices caused by the Middle East crisis.
The average easy-access savings interest rate fell to 2.41% in February 2026,its lowest since July 2023, according to financial comparison website Moneyfacts.
“The bottom line is to ensure your emergency fund meets your actual needs, and not let excess cash sit idle in current accounts when it could be working harder elsewhere – even in other cash accounts,” says Mountford.
The Financial Conduct Authority (FCA) says there are seven million adults in the UK with £10,000 or more in cash savings who may be missing out on the benefits of investing in the stock market.
There are no guarantees with investing, and your investment could go down as well as up. The Middle East crisis and rising oil prices have seen recent stock market falls. This illustrates why it’s important to invest for the long term.
Over the long run, money invested in a diversified portfolio should have a stronger chance of growth than savings earning interest, says Chris Hood from financial advice firm NFU Mutual.
“Investing additional money over and above a cash emergency fund can help you meet your longer-term objectives. Even if you’re in your 50s, your timeframe will still likely be long term,” he adds.
Since 1957, the US S&P 500 index has delivered an average annual return of above 10%, despite 20 or more major downturns over that time.
Having an investment horizon of 10, 15, 20 years or more should offer enough time for investments to ride out any ups and downs in the stock market. We explain more here about whether investing is right for you.
There are many platforms in the UK offering the chance to make your own investment choices without necessarily needing to go through a financial adviser. Many will offer written guides on how to choose investments, or will offer ready-made portfolios that you can simply pay into.
A stocks and shares ISA is a tax-efficient way to invest, up to your maximum £20,000 annual allowance. (Any contributions you also make to cash ISAs will count towards this annual allowance.)
With investments you don’t pay tax on interest in the same way as you do with a savings account, but you could have to pay capital gains tax and dividend tax (if your gains are above the allowances). Sheltering investments in an ISA avoids these taxes.
Investing carries an element of risk, and you may not get back your initial investment. If you're a more cautious investor, UK government gilts, while not completely without risk, are usually seen as a lower-risk product.
They offer the potential for fixed long-term income return and are exempt from capital gains tax. Andy Gillett, director at BRI Wealth Management, says this makes them particularly attractive to higher and additional-rate taxpayers.
Gilts with short periods of time until they mature may also appeal to savers or investors because interest rates remain relatively high and they offer the opportunity for stable and competitive returns.
If you haven’t retired yet, saving into your pension is generally the most tax-efficient way to save for the future. A pension is essentially a way of investing in the stock market for the long term, with added tax advantages.
Offshore bonds are a different way of investing in a tax-efficient way. They tend to be more suited for investors who have already built up a significant amount of wealth and are looking for tax-efficient ways to manage it over the long term. They are a more complicated investment product and tend to come with higher fees.
Saga has partnered with HUB Financial Solutions, who can help you find the right annuity for you from the whole of market. If you take out an annuity using their service, Saga Money will earn a commission.
Discover how government bonds work, their unique tax advantages, and how they compare to cash savings.
From the choice of investments to charges and service, we explain the key things to consider
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